Decades before he started exploring for minerals in British Columbia’s Golden Triangle, Hugh ‘Mac’ Balkam said he used to investigate stock fraud with the Royal Canadian Mounted Police.

So last week when a hedge fund levelled explosive accusations of fraud against a miner in his district, Pretium Resources Inc., the company behind one of the highest grade gold mines in Canada, and its stock started sinking, Balkam thought about his own investment portfolio.

“Myself, I actually sold some bank stock and bought more Pretium,” said Balkam, chief executive of Toronto-based Eskay Mining Corp. “I think that stock is worth a lot more.”

He is not alone: only one of 12 analysts covering Pretium as of Friday advised selling stock in Pretium, with the rest largely waving off arguments laid out by Viceroy Research — a well-known, albeit anonymous, short-seller — which is betting that Pretium’s Brucejack mine has less gold than claimed and the company is on the precipice of disaster.

But short sellers make money from bets that a company’s stock price will fall, which makes Balkam, and others skeptical. Indeed, while Pretium shares initially sank from US$7.81 to US$6.65 after the accusations last week, the price had fully recovered by Friday.

Of course, doubts about the grade and quantity of gold at Pretium’s Brucejack mine have been tossed around since before it was even built. It is far from the first rumpus to strike miners in B.C.’s Golden Triangle, a remote mountainous region near the province’s northern coast.

The area has been mined for more than a century, but recent upgrades including a paved highway, deepwater port and a $700 million electric transmission line, combined with exploration such as Brucejack, are transforming an isolated area — it’s a 17-hour drive from Vancouver — into a hotbed. During the past year, there’s been a fair amount of controversy attached to exploration and mining in the region.

Last summer, Garibaldi Resources Inc., a nickel explorer in the area without a single mine, was trading at 12 cents in June, and then rode a surge of investor excitement to trade as high as $5 by the fall. Before the year ended, however, the share price sank back to between $2 and $3, with hundreds of millions of dollars in market capitalization wiped out in the process.

“It’s not been all fun,” Steve Regoci, chief executive of Garibaldi told the Financial Post earlier this year, noting he had to contend with short sellers and people who accused him of fraud along the way.

Certainly, the area has seen some success too: Barrick Gold Corp. pulled out 3.3 million ounces of gold between 1994 and 2008.

And Imperial Metals Corporation, the company that faced a dam failure due to poor design at its Mount Polley Mine in B.C., operates its Red Chris mine in the Golden Triangle, expected to produce more than 72 million pounds of copper and 31,000 ounces of gold in 2018.

Seabridge Gold Inc. isn’t producing any metals yet, may but has been exploring the Golden Triangle for years and racking up success. Now, it has identified 39 million ounces of gold and 10 billion pounds of copper — which would create one of the largest mines in the world, if built.

“It’s gotten so large that it’s beyond our capabilities to build,” said Rudi Fronk, chief executive of Seabridge. “This project needs a major mining company to come in and build the mine.”

But whereas Seabridge has a low-grade deposit, its neighbor Pretium, has a high grade deposit where the gold is densely packed.

Fronk, who said he is familiar with the geology in the area, said that because Pretium’s Brucejack mine is so high grade, the consistency of gold found varies more throughout the deposit, which makes it difficult to evaluate, he said.

“But that’s the nature of those types of deposits,” Fronk said.

Even though Pretium’s Brucejack mine has been operating since mid-2017 and has already produced more than 200,000 ounces of gold in 2018, questions about the deposit have dogged the company for years.

In 2013, before Brucejack was even built, it hired Strathcona Mineral Services Limited — the consultancy that spotted fraud at Bre-X Minerals in 1997 — to confirm the grade of gold from a bulk sample. Strathcona disagreed about the quality of the grades and resigned, which the short-seller Viceroy lays out in a 47-page report where it made the accusations against Pretium.

Much of that report rehashes the history of Brucejack, but it brought some new information to light.

First, Viceroy notes that the company that Pretium hired to replace Strathcona, Strategic Minerals LLC, was operated by Serofim Mura, who in 2017 settled fraud charges with the U.S. Securities and Exchange Commission. The fraud charges, however, are on the surface at least unrelated to Pretium.

Second, it noted a discrepancy: In government documents related to mine reclamation, Pretium indicated it is moving more waste than it had indicated it was moving in reports to investors.

“This suggests reported grades and reserves are significantly inflated,” Viceroy wrote, arguing Pretium has misled shareholders, and “a much greater amount of waste is being dumped into local lakes.”

Since Viceroy was published on Sept. 6, Pretium has issued a press release announcing a correction in the amount of waste moved as reported to the government for mine cleanup purposes. It had reported the “the total historical volume” as opposed to just the amount moved in 2017, according to a press release.

Both Pretium nor Viceroy declined to comment for this article.

Viceroy is best known for its report in 2017 on accounting irregularities at South Africa’s Steinhoff International Holdings NV, a furniture and household goods distributor, whose stock crashed at that time. It continues to put forward its case that Pretium’s Brucejack is not as high grade as claimed and the company will run into problems with its debt payments within 12 months.

Meanwhile, excitement about the Golden Triangle continues. Last week, Toronto-based GT Goldcorp, a junior explorer with property in the area, announced strong exploration results and its stock shot up from 53 cents to 73 cents.

“It’s not as remote as it once was,” said Amandip Singh, vice president of corporate development at GT Goldcorp. “It’s an area that’s ripe with potential … it’s elephant country.”

If Friday's gains are anything to go by, investors are champing at the bit

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